Sullivan Company uses a predetermined overhead rate based on machine hours to allocate manufacturing overhead to jobs.The company estimated that it would incur $500,000 of manufacturing overhead during the year and that 200,000 machine hours would be used.During the year,the company actually incurred manufacturing overhead costs of $590,000 and 220,000 machine hours were used. By how much was manufacturing overhead overallocated or underallocated for the year?

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The predetermined overhead rate is $500,000 / 200,000 machine hours = $2.50 per machine hour. Actual manufacturing overhead costs incurred were $590,000. Actual machine hours used were 220,000. Therefore, the amount of manufacturing overhead allocated to jobs is $2.50 per machine hour * 220,000 machine hours = $550,000. The amount of manufacturing overhead overallocated is $590,000 - $550,000 = $40,000.

Sullivan Company Uses a Predetermined Overhead Rate Based on Machine